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1. What are the distinguishing characteristics of competitive price-searcher markets? Indicate a market that approximates these conditions.

2. Price searchers can set the price of their product. Does this mean that price searchers will charge the highest possible price for their product? What price will maximize the profits of a price searcher?

3. In price‑searcher markets with low barriers to entry, will the firms be able to make economic profit in the long run? Why or why not? What do competitive price searchers have to do in order to make economic profit?

4. When competitive forces are present, sometimes firms will make losses and be driven out of business. Would our standard of living be higher if the government provided subsidies to troubled firms so that they would not have to go out of business? Why or why not?

5. When firms are price searchers, why will marginal revenue (MR) be less than price?

Below, we show the long-run equilibrium for both price-taker & price-searcher markets with low entry barriers. For both, P= ATC and there are no economic profits.

As the price searcher faces a downward-sloping demand curve, its profit-maximizing price exceeds MC. In contrast with the price-taker market, price-searcher output is too small to minimize ATC in long-run equilibrium.

By charging higher prices to consumers with less elastic demand and lower prices to those with more elastic demand it will increase net operating revenue.

If the airline charges $600 to business travelers (who have a highly inelastic demand) and $300 to other travelers (who have a more elastic demand), it can increase its Net Operating Revenue to $42,000.

1. Is price discrimination harmful to the economy? How does price discrimination affect the total amount of gains from exchange? Explain. Why do colleges often charge students different prices, based on their family income?

2. What is the primary requirement for a market to be competitive? Is competition necessary for markets to work well? How does competition influence (a) the cost efficiency of producers and (b) the quality of products. What determines whether a good will continue to be produced in a competitive market?